AbitibiBowater Ready To Tap The Money Pits (ABH)

AbitibiBowater Inc. (NYSE: ABH) has just set the stage to raise additional capital, although it was known that some of this may be coming down the pipe.  The company has filed prospectus for an open S-3 that would allow the company to sell securities either in debt, preferred, common stock, or warrants.  No dollar amounts were offered and no underwriters were named.

AbitibiBowater produces a wide range of newsprint and commercial printing papers, market pulp and wood products in the U.S., Canada, and around the globe.  On October 29, 2007, Abitibi-Consolidated Inc. and Bowater Inc. completed their merger of equals.  If you have kept up with the newspaper and print publishing industry woes over the last 24 months and combined with a freshly-closed merger and a weakening economy for most of its products, this is no surprise at all that the company wants to raise funds.

The company did amend some credit facilities recently and had already noted that it was exploring multiple financing alternatives for additional liquidity in 2008 and 2009.  It also has debt maturities of more than $300 million coming up but the combined old-co filings rather than new-co filings need to be verified to see what maturities are still outstanding.  Its 10-K is still outstanding so we can’t compare this on an apples to apples basis.  Analysts are still cautious on this stock, although the target price looks much higher because of the huge drop seen over the last 6-months.  This stock has fallen sharply since being relaunched as a combined company as shares have fallen from north of $30 to under $10 before today’s 10% recovery.  Shares were north of $15.00 before earnings at the end of February.

Because of the way the economy is heading and because of the domestic newsprint industry in the U.S. and Canada, it’s just hard to get excited here.  The short interest is rather large at 12.77 million shares on last look which is about 10 days worth of average trading volume.  Only that huge drop and major short interest makes this one of any interest.  We’ll stay tuned for any further developments because this one would act like a spring board on anything that resembles good news. 

Our first suggestion for use of funds after repaying the upcoming debt maturities would be simple: a name change.

Jon C. Ogg
March 5, 2008